SUDAMA SHAW,KOLKATA vs. ITO, WARD 53(1), KOLKATA, KOLKATA

Sudama Shaw A.Yr.2011-12 2. The Ground No.1 raised by the assessee was stated to be not pressed by the ld AR at the time of hearing before us. Hence the same is dismissed as not pressed. 3. The Ground Nos. 2 & 7 raised by the assessee are general in nature and does not require any specific adjudication.

4.1. The brief facts of this issue is that the assessee is an individual engaged in the business of running a restaurant and sale of liquor. The return of income for the Asst Year 2011-12 was filed by him on 30.9.2011 declaring total income of Rs 3,02,043/- and later a revised return was filed on 7.6.2012 declaring total income of Rs 3,14,518/-. The assessee is the proprietor of M/s Sona Restaurant & Hotel. As on 31.3.2010, the capital account of the assessee as appearing in the balance sheet of his proprietory concern M/s Sona Restaurant &Hotel was Rs 23,14,361.91 and bank loans payable at Rs 3,63,028/-. The total value of balance sheet as on 31.3.2010 was Rs 26,77,389.91. The same is considered at Rs 26,77,390/- for the sake of convenience. The assessee also started another proprietory business engaged in sale of liquor under the name and style of ‘Sona Kuthi’ on 23.4.2010. From the Balance Sheet of M/s Sona Kuthi as on 31.3.2011, the ld AO observed that the assessee had shown opening capital account as on 23.4.2010 of Rs 38,77,390/-. The ld AO enquired about the source of this capital figure of Rs 38,77,390/-. The assessee explained as under:-

Transfer of total funds available in the business of Sona Restaurant & Hotel Rs 26,77,390/- Gift received from father Mr Vanaras Sah on 10.4.10 Rs 6,00,000/- 2

Sudama Shaw A.Yr.2011-12 Gift received from Brother Mr Nandlal Sah on 12.4.10 Rs 6,00,000/- ------------------- Rs 38,77,390/- ------------------- No explanation was furnished in this regard by the assessee before the ld AO and accordingly the said sum of Rs 38,77,390/- were treated as unexplained cash credit u/s 68 of the Act and added to the total income of the assessee.

4.2. The assessee filed the balance sheet of Sona Restaurant & Hotel to prove the availability of own funds in the sum of Rs 26,77,390/-. The assessee filed declaration and confirmation of gift from his father and brother for having gifted Rs 6 lacs each to him together with their income tax particulars. The assessee also filed copy of their income tax returns together with their balance sheets to prove the availability of sufficient sources for father and brother to advance the gift to the assessee. The assessee also submitted that at the time of assessment proceedings, the books of accounts of M/s Sona Restaurant & Hotel were seized by the sales tax department and hence the same could not be produced before the ld AO for his examination. All these particulars were subjected to remand before the ld AO. The assessee submitted it was running business in the name and style of M/s Sona Restaurant which from 1.4.2010 was converted into partnership firm in the same name of M/s Sona Restaurant. Assesseee claimed to have utilized his own capital in his proprietorship business M/s Sona Kuthi. It was also further mentioned that both the father and brother were agriculturists and were engaged in petty lending activity deriving interest income. The ld AO submitted in the remand order that though the assessee submitted some explanation but he has not cooperated by furnishing the desired information. By placing reliance on the remand report, the ld CITA upheld the action of the ld AO. Aggrieved, the assessee is in appeal before us.

Sudama Shaw A.Yr.2011-12 4.3. We have heard the rival submissions. At the outset, there is no dispute that the total funds of Rs 26,77,390/- were indeed available in the balance sheet as on 31.3.2010 of M/s Sona Restaurant. But the same comprises of own capital of Rs 23,14,362/- and bank loan liabilities of Rs 3,63,028/-. We find that the assessee had not provided any evidence to prove whether the said bank loans were settled by him. Hence the sum of Rs 3,63,028/- cannot be used as available source for investment in new proprietory business M/s Sona Kuthi. However, we find that there is no evidence to the contrary to prove that the closing capital balance of assessee in M/s Sona Restaurant as on 31.3.2010 in the sum of Rs 23,14,362/- was utilized for any other purpose. Hence that sum is very much available to explain the investment in capital of M/s Sona Kuthi. Hence it is effectively a transfer of capital account from one proprietorship business to another proprietorship business. Hence in our considered opinion, the assessee should be given credit for Rs 23,14,362/- in the addition made towards introduction of capital of Rs 38,77,390/- as source is explained to the extent of Rs 23,14,362/-.

4.3.1. With regard to receipt of gifts from father and brother, we find that the assessee had duly filed a declaration and confirmation of gift from the donors explaining the circumstances and mode of gift together with their income tax particulars. Both the donors are duly assessed to income tax and they had also filed their balance sheets giving their sources of income . We find in the said balance sheets filed , the gift given to the assessee is reduced from their respective capital account balances. Hence the identity and creditworthiness of the donors stood clearly established. There is no evidence on record to the contrary to doubt the genuineness of the transactions. When the son is starting a new business, it is quite natural for the family members to come forward with their little assistance by offering gifts, loans etc. We find that the authorities below had merely rejected these documents and evidences submitted from father and brother. No efforts were taken by the authorities to examine the father and 4

Sudama Shaw A.Yr.2011-12 the brother to clear their doubts, if any. We find that similar matter had come up for consideration before this tribunal in the case of Shankar Agarwal vs ACIT in dated 13.7.2018, wherein it was held as under:-

“6.1. The assessee has filed copies of declaration of gift from both his parents. Copies of the income tax returns, profit and loss account, capital gain and balance sheets of his father and mother have been filed. Copy of cash book of as well as copy of bank statements of Shri Hanuman Prasad Agarwal (father of the assessee) & Smt. Shanti Devi Agarwal (mother of the assessee) were filed. The ld. CIT(A) rejected the contention of the assessee on the ground that the donors do not have creditworthiness. The donors in this case happen to be the father and mother of the assessee. All necessary details were filed in this regard. Both the parents are income-tax assessees. Under these circumstances, in our view, no addition can be made in the hands of the assessee.”

4.3.2. We find that the assessee had duly submitted all the relevant documents with supporting evidences before the ld AO in the remand proceedings which is evident from the letter dated 16.5.2016 filed on 17.5.2016 and enclosed in pages 89 and 90 of paper book before us. In this scenario, we hold that the ld AO was incorrect in stating that the assessee had not cooperated in the remand proceedings by furnishing the requisite details and evidences. In view of the aforesaid findings in the peculiar facts and circumstances of the case and respectfully following the judicial precedent relied upon hereinabove, we have no hesitation in directing the ld AO to delete the addition made in the sum of Rs 38,77,390/- towards introduction of capital. Accordingly, the Ground No. 3 raised by the assessee is allowed.

Sudama Shaw A.Yr.2011-12 5.1. The brief facts of this issue is that the assessee is an individual engaged in the business of running a restaurant and sale of liquor. The liquor business is carried in the proprietary concern styled as M/s Sona Kuthi. In the Balance Sheet of M/s Sona Kuthi as on 31.3.2011, the assessee had reflected the secured loans received by him for the purpose of business as under:-

State Bank of India – 31661639104 Rs 8,10,682/- United Bank (HBL) Rs 17,00,000/- -------------------- 25,10,682 In the assessment order, the ld AO observed that no supporting documents or evidences were filed by the assessee in this regard and accordingly, he proceeded to add the same as unexplained cash credit u/s 68 of the Act.

5.2. The assessee borrowed unsecured loans of Rs 15,40,000/-in its proprietory concern M/s Sona Kuthi and reflected the said loan liabilities as such as on 31.3.2011 in its Balance Sheet. The ld AO observed that no supporting documents or evidences were filed by the assessee in this regard and accordingly, he proceeded to add the same as unexplained cash credit u/s 68 of the Act.

5.3. The assessee placed all the relevant documents before the ld CITA for the first time. The ld CITA sought for a remand report from the ld AO with regard to those additional evidences. The assessee had stated that it had availed bank loan from State Bank of India in the sum of Rs 8,10,682/- as on 31.3.2011. It was submitted that in the balance sheet, the house building loan availed by the assessee from PNB Housing Finance Ltd was wrongly reflected as loan from United Bank of India. It was clarified 6

Sudama Shaw A.Yr.2011-12 that no loan was ever availed from United Bank of India. The assessee also placed on record a certificate from his Chartered Accountant who admitted to having committed an error in not mentioning PNB Housing Finance Ltd in place of United Bank in the balance sheet. The details of house building loan availed from PNB Housing Finance Ltd are as under:-

A/c No. 6660000734 - Rs 2,00,000/- A/c No. 6700000719 - Rs 15,00,000/- --------------------- Rs 17,00,000/- 5.3.1. The assessee also submitted evidences in this regard in the form of loan sanction letters, loan account statements before the ld CITA and later before the ld AO in the remand proceedings. The assessee also explained that the total balance outstanding of housing loans from PNB Housing Finance Ltd as on 31.3.2011 was as under:-

A/c No. 6660000734 - Rs 2,01,857/- A/c No. 6700000719 - Rs 14,87,301/- --------------------- Rs 16,89,158/- 5.3.2. As against this, the loans reflected in the balance sheet was Rs 17,00,000/-. The difference was explained as wrong appropriation towards interest on loan account, meaning thereby, that the interest account should be reduced and correspondingly the loan balance also should be reduced by the difference amount of Rs 10,842/-. This reply was not appreciated by the ld AO in the remand proceedings. With regard to loan from State Bank of India also in the sum of Rs 8,10,682/-, the assessee submitted the loan account statement before the ld AO which was ignored by him in the remand report. The ld CITA placing reliance on the remand report and ignoring the objections

Sudama Shaw A.Yr.2011-12 of the assessee filed thereon, upheld the action of the ld AO in sustaining the addition in the sum of Rs 25,10,682/-.

5.4. With regard to the unsecured loans of Rs 15,40,000/- are concerned, the assessee submitted the names and addresses of the persons (all are family members) from whom monies were received together with their PAN, balance sheets, loan confirmation and income tax return details. The same were subjected to remand proceedings by the ld CITA. All these documents are enclosed in pages 37 to 70 of the paper book filed before us. The ld AO analysed the details submitted by the assessee for each and every loan creditor and observed that they did not possess enough creditworthiness eventhough they had confirmed having given loan to the assessee and the fact of giving loan to assessee is also reflected in their respective balance sheets. Accordingly , he supported the assessment order in making the addition of Rs 15,40,000/-. The ld CITA placing reliance on the remand report and ignoring the objections of the assessee filed thereon, upheld the action of the ld AO in sustaining the addition in the sum of Rs 15,40,000/-.

5.5. We have heard the rival submissions and perused the materials available on record. We find that with regard to addition towards secured loans of Rs 25,10,682/-, the assessee had availed loans as under:- State Bank of India - Rs 8,10,682/- PNB Housing Finance Ltd - Rs 17,00,000/- This fact is evident from the loan sanction letters issued by them to the assessee and the loan account statements. The mistake committed by the assessee in the balance sheet by wrongly showing the name of United Bank of India had been duly addressed by a 8

Sudama Shaw A.Yr.2011-12 certificate from a chartered accountant, stating it to be typographical error. The discrepancy in loan amounts vis a vis interest portion thereon is also duly addressed except to the extent of Rs 10,842/-. In these facts and circumstances, the loans availed from State Bank of India and PNB Housing Finance Ltd and reflected in the balance sheet as on 31.3.2011 cannot be doubted with. We find that the assessee had duly submitted all the relevant documents with supporting evidences before the ld AO in the remand proceedings which is evident from the letter dated 16.5.2016 filed on 17.5.2016 and enclosed in pages 89 and 90 of paper book before us. In this scenario, we hold that the ld AO was incorrect in stating that the assessee had not cooperated in the remand proceedings by furnishing the requisite details and evidences. Hence there is no case made out by the revenue for disbelieving the loan taken from bank and PNB Housing Finance Ltd. Accordingly, the addition of Rs 25,10,682/- is hereby directed to be deleted. Accordingly, the Ground No. 4 raised by the assessee is allowed.

5.6. With regard to unsecured loans received in the sum of Rs 15,40,000/-, the assessee had produced the names and addresses of the loan creditors together with their PAN, balance sheets, income tax return and loan confirmation. Merely because the loan creditors had shown lesser income in their income tax returns , that does not automatically mean that the concerned loan creditors did not have sufficient sources to advance loan to the assessee. The loan advanced to the assessee is duly reflected in their balance sheets. We find that the assessee had duly submitted all the relevant documents with supporting evidences before the ld AO in the remand proceedings which is evident from the letter dated 16.5.2016 filed on 17.5.2016 and enclosed in pages 89 and 90 of paper book before us. In this scenario, we hold that the ld AO was incorrect in stating that the assessee had not cooperated in the remand proceedings by furnishing the requisite details and evidences. Hence in this scenario, the loans received by the assessee from those loan creditors in the sum of Rs 15,40,000/- which are duly confirmed by them and reflected in their respective balance sheets, cannot be 9

Sudama Shaw A.Yr.2011-12 added as unexplained credit in the hands of the assessee. Accordingly, the addition of Rs 15,40,000/- is hereby directed to be deleted. Accordingly, the Ground No. 5 raised by the assessee is allowed.

Order pronounced in the Court on 01.08.2018